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Diversify Properly First

Invest in specialty or thematic funds only when you already have a well-diversified portfolio of good performing funds…

I have SIPs in ICICI Infrastructure and Reliance Diversified Power Sector fund that come to end shortly. I plan to start fresh SIPs in Reliance Banking fund and ICICI Prudential Dynamic fund. Is this the right move?
- Ashutosh Akolkar

Fund Scheme  Category  Rating  3-yrs ret (%)  5- yrs ret (%)
ICICI Infrastructure Infrastructure **** 8.1 16.92
ICICI Prudential Dynamic Large & Mid Cap **** 18.44 17.85
Reliance Banking Retail Equity: Banking Not Rated 32.78 32.31
Reliance Diversified Power Equity: Others Not Rated 8.92 22.73
Return as on July 11, 2011, Rating as on June, 2011

Your choice of current investments in an infrastructure fund and a thematic fund which invests in the power sector is surprising. Investing in a thematic or sector fund is risky because of the thin investment mandate these funds follow. For instance an infrastructure fund typically invests in securities of companies belonging to infrastructure sector, the fortunes of this sector have not picked up in recent years and the performance of this fund amply reflects that. Likewise, Reliance Diversified Power has been losing on performance over the past few years. Your decision to exit both these funds is right.

However, you need to ask yourself why you invested in these two funds before considering investments in Reliance Banking, a banking sector fund and ICICI Prudential Dynamic, a large- and mid-cap fund. Investing should be done with a financial goal, and once the goal is achieved the accumulated funds should be utilised. There is a lesson from this experience for you: invest in special funds only when you have an already diversified portfolio and these funds are present for the idea or for balancing the overall portfolio balance. If these are your only investments, you will be better by investing in a large cap fund such as DSPBR Top 100 Equity or Franklin India Bluechip. Both the funds are highly rated with a proven track record and performance history and will complement ICICI Prudential Dynamic to form the core of your mutual fund portfolio.

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